What will 2011 hold for Equipment Finance?

Looking towards 2011 we are asking a lot of questions.  What will the equipment leasing industry do, how will it adapt? Will Money Come Back into Equipment Finance?

We are already seeing a large number of banks bid aggressively for middle-market and larger small-ticket transactions. Some of the national banks have been going up to $250,000 and $300,000 on an application-only basis for bank customers on equipment and industry sectors they like.

There are a few new entrants into the small-ticket application-only market, including the broker market (on a selective basis). This trend will probably continue in 2011 and pricing will be very aggressive on quality transactions.

This is a mixed bag for syndicators of transactions. On one hand, there will be more sources of capital available. On the other hand, there may be a large rate differential between walking down the street to Wells Fargo and getting financed at 4% and selling a broker transaction with points - so the syndicator world will continue to be predominantly "B" and "C" deals, not true "A" deals.

Lots of Smaller Banks will Continue to Fail and Shed Assets
The FDIC will begin to press weaker banks to shed assets and shut down now that there is ample liquidity in the overall system. As such, we see opportunities to purchase portfolios and leasing companies from banks next year. There will, however, be lots of bidders for those assets.  In general, we will see greater separation of the "haves" and the "have nots" in the funding world and the "haves" are going to be buying market share.

What will 2011 Hold?
We are coming out of a very deep recession, and tangible recovery is only just begging. For many leasing companies it is still going to be a difficult year. Overall equipment demand - especially for small businesses - is still weak (even though it is better). There are just not enough good deals to go around.  The next year is going to require huge amounts of hard work to be profitable.

More Competitive
Even small leasing companies are in a world market. Large companies like GE, Wells Fargo, Bank of America, Chase, etc. are constantly investing in new technology. These companies do collections from India at a much lower cost than small companies in the US. The large companies are run by smart people who are out to crush us all (Yikes!). In 2011 this trend will continue (as it will in 2012 and 2013 and forever). You had better be ready to compete.  You had better add some value or you are done.

Banks Will Still Be Banks
Having said that large institutions and especially banks are going to continue to be big competitors, there is an opposite side of the coin. The banks are struggling with increased regulation (unlikely all of it will be repealed even with a Republican House) and they are generally not interested in small, complex areas of the economy. Thus, we see that value will continue to be added by focusing on the complex and focusing on "niche" markets.

People Will Wake Up to Accounting Change
Radical accounting changes are coming. The smaller the borrower the less effect the changes will have. However, it will open up real opportunity for lessors willing to take big residual risk in the future as companies will be interested in shedding liabilities from the balance sheet. We will be back to having lessors who are actually in the equipment business. Change will not likely come until 2013, but next year is only two years away!